FX Rate News

The dollar was on the defensive at a one-week low on Thursday, as robust U.S. data and fresh hopes for U.S. fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies.

Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.

Along with strong U.S. labor and manufacturing data, that helped stocks to rally, and the mood pulled the dollar to a one-week low of 93.664 against a basket of currencies.

Early in the Asia session, the New Zealand dollar extended gains to a one-week peak of $0.6635. The Aussie rose to $0.7183, also the strongest in a week.

“The two sides have come a long way,” Westpac FX analyst Sean Callow said of the possible relief bill.

“The rhetoric is reasonably conciliatory; I think we’re getting closer,” he said, adding that an agreement would help the mood in equity markets and likely spill over into currency trade, boosting riskier currencies at the dollar’s expense.

At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed in to the positive sentiment.

Chinese data on Wednesday had also shown the recovery on track in the world’s second-biggest economy.

The yuan edged up to a week high of 6.7530 in offshore trade on Thursday, though volumes are thin and the onshore market is closed for holidays until October 9.

Nevertheless, firmness in the safe-haven Japanese yen indicated that plenty of underlying caution still remains. The yen held at 105.45 on Thursday, after climbing in the wake of a chaotic first U.S. presidential debate.

The yen ended its best quarter since mid-2019 on Wednesday with a 2.4% gain over the three months to September 30 as some of the exuberance in risk assets faded, particularly in September.

Gains in the euro overnight were also muted after European Central Bank President Christine Lagarde hinted that a strategy overhaul, and a more accommodative approach to inflation, could be possible.

The euro edged up 0.22% on Wednesday and held at $1.17248 on Thursday. The pound edged up to $1.2941.

Final purchasing managers index figures are due in Europe and Britain later on Thursday, followed by the ISM manufacturing survey in the United States and jobless claims data – all providing an update on the progress of the global coronavirus recovery.

Speeches from Bank of England Chief Economist Andy Haldane, at 1020 GMT, and ECB Chief Economist Philip Lane, at 1545 GMT, will also be closely watched for hints as to the next monetary moves.

Volatility across asset markets is fueling a bounce in the battered dollar, showcasing the currency’s safe-haven status amid worries over growth abroad and U.S. political strife.

The buck is up nearly 2% in September as of Tuesday against a basket of currencies, on track for its best monthly gain in 14 months and outpacing the performance of many other traditional destinations for nervous investors in what has been a turbulent period for stocks.

Gold, for example, is down nearly 4% in September, while the S&P 500 utility sector is little changed, and the Japanese yen is flat. Yields on the 10-year U.S. Treasury notes, which move opposite to prices, started the month at 0.67% and last traded at around 0.64%. The S&P 500 is off nearly 5% in the same period.

Several catalysts are stoking the dollar’s rebound, which has put the greenback at its highest level since late July. The U.S. currency’s 8% decline from its highs in March has left it looking comparatively cheaper than assets like gold, which stood at all-time highs last month. The yen’s haven status, meanwhile, may have suffered in the wake of a pandemic-era collapse in global rates.

“The dollar’s resurgence has … to do with the response of the capital markets to the global wave of de-risking,” said Thanos Bardas, managing director and co-head of global investment-grade fixed income at Neuberger Berman.

At the same time, many of the factors that made the dollar less attractive in recent months appear to be dissipating. COVID-19 cases are accelerating in Europe, threatening expectations of growth that boosted the euro, while worries over a hard Brexit have weighed on the British pound.

Additionally, speculation over the possibilities of negative interest rates in the UK and Australia have dimmed the allure of those currencies to some investors, although such a move seems far off. In the United States, uncertainty stemming from the Nov. 3 presidential election and the shrinking likelihood of lawmakers agreeing on a fiscal stimulus package this year have fueled haven demand.

Bardas said Neuberger added to bets that the dollar will rise against the euro, a currency he believes is overvalued after a 10% run since March.

Chester Ntonifor, foreign exchange strategist at BCA Research, said spikes in equity market volatility have tended to boost the U.S. currency, as does turbulence in foreign exchange markets after long periods of placid trading.

Broader currency market volatility, as measured by Deutsche Bank, shot up to 8.4 on Tuesday, from 5.93 in late July.

The dollar index has risen by an average of roughly 2% in the two most recent upsurges of volatility.

Others see the rally as a chance to take profit on the dollar or place bets against the currency, believing it will resume weakening once markets grow calmer.

“I have been a dollar bull. But I am using this opportunity to sell dollars when everybody is buying,” said Momtchil Pojarliev, head of currencies at BNP Asset Management, who is selling dollars to buy yen.

The dollar’s rally received a tailwind from a “nasty short squeeze,” as investors betting on a weaker U.S. currency were forced to unwind their bets in recent weeks, said Paresh Upadhyaya, director of currency strategy and portfolio manager at Amundi Pioneer Asset Management.

The possibility of further positioning unwinds remains – net bets on a weaker dollar in futures markets stood at $33.6 billion in the latest week, data from the Commodity Futures Trading Commission showed, near a nine-year high.

But Upadhyaya has added to his fund’s anti-dollar bets by buying the euro and Czech koruna.

“This is a healthy correction that is needed to ensure that a further depreciation in the dollar has legs,” he said.

The dollar hovered near a two-month peak against a basket of currencies on Monday as doubts about economic recovery persisted before a barrage of economic data and political developments in the United States.

A rebound in U.S. stocks on Friday has helped curb the ascent of the dollar, considered a safe haven, but signs of slowdown in the nascent recovery from the pandemic and political uncertainties have kept investors on guard.

The dollar index slipped to 94.21. It reached a two-month high of 94.745 last week and posted its biggest weekly rise since early April. Against the yen, the dollar was more subdued at 105.36 yen.

The pound jumped to $1.2896 on hopes Britain could secure a Brexit trade deal with the EU.

The euro rose 0.3% to $1.1661 after dropping to $1.16125 on Friday, its lowest in two months.

“Last week, widening credit spreads as seen in iTraxx Crossover and in European financials were seemingly a key driver for weakness in euro/dollar,” said Christin Tuxen, head of research at Danske Bank.

“Indeed, rising global and notably European risk aversion continue to be clearly U.S. dollar positive, and notably investors entered this period of questioning the risk/reflation/recovery theme stretched on dollar shorts.”

Data on U.S. currency futures positions released on Friday also pointed to further upside potential for the dollar, with speculators holding a big net short position in the currency which they could move to cover if the greenback moves higher.

U.S. Commodity Futures Trading Commission data showed speculators held a net short position of $33.989 billion , up from $31.524 billion the week before and near the highest level in almost 10 years.

The flip side of that was a large net long positions in the euro, which showed a slight increase last week to $27.922 billion.

“We think euro/dollar should find good long-term demand below the 1.1600 area, but really require some better news on the global recovery – effective lockdowns, vaccines, new stimulus – before the euro/dollar rally fully resumes,” ING said in a note to clients.

Investors are now looking to the first U.S. Presidential debate on Tuesday.

“Few people will be trying to bet on the election outcome. At least they will wait until tomorrow’s TV debate,” said Kyosuke Suzuki, director of forex at Societe Generale.

The New York Times reported on Sunday that President Donald Trump paid little in income taxes in recent years, claiming heavy losses from his business enterprises that offset hundreds of millions of dollars in income.

Meanwhile, worries are growing that the economic recovery is slowing as many stimulus programmes have expired, curbing consumer spending.

The week provides markets with more data on the health of the world’s biggest economy, including consumer confidence on Tuesday, a manufacturing survey and consumer data on Thursday and jobs data on Friday.

Elsewhere, the Turkish lira briefly dropped 1.6% to a record low of 7.8000 per dollar.

The lira had enjoyed a rare bounce after an interest rate increase late last week, but the gains faded amid scepticism about how it would filter through into financial market rates.

The U.S. dollar held at a two-month high on Thursday as investors sought its safe-haven appeal on growing concerns over the resilience of an economic recovery in the United States and Europe amid a second wave of coronavirus infections.

Federal Reserve policymakers called on the U.S. government to provide more fiscal support, fuelling a bout of selling in risky assets overnight, while European economic data has worsened in recent days prompting investors to lighten their positions after a rally in August.

“Safe haven demand and higher inflation adjusted yields is leading to a mini dollar revival,” said Kenneth Broux, a strategist at Societe Generale in London.

Against a basket of six other currencies, the dollar edged up 0.1% to a two-month high at 94.56. It is up nearly 2% so far this week as economic momentum shows signs of fading. It fell to an April 2018 low of 91.8 at the end of August.

Appetite for riskier assets soured after data on Wednesday showed U.S. business activity slowed in September and new restrictions to stem a surge in coronavirus infections in Europe hit the services industry.

The Norwegian and the Swedish crown came under particular selling pressure in London trading hours after the former trimmed its inflation forecasts for the next year and said no rate hikes are planned for now.

The crown weakened 0.8% versus the euro to a 4-1/2 month low of 11.15 crowns, and 0.9% versus the U.S. dollar to a near three-month low of 9.6 crowns, before trimming some losses.

The Swedish crown fell 1% against the greenback to 9.07 crowns per dollar.

A surge in COVID-19 cases in Europe risks becoming a deadly double epidemic of flu and coronavirus infections, EU health officials warned on Thursday as they urged Europeans and their governments not to let their guard down.

Also puncturing market optimism are growing concerns that U.S. policymakers might struggle to reach an agreement to push for more fiscal stimulus after the November elections.

“Optimism on the recovery, optimism on the virus, and bets on stimulus were keeping markets well bid, and on all three of these issues, there has been a degree of disappointment this month,” said John Velis, an FX and macro strategist at BNY Mellon.

U.S. Federal Reserve Vice Chair Richard Clarida said on Wednesday that the U.S. economy remained in a “deep hole” of joblessness and weak demand and called for more fiscal stimulus, adding that policymakers “are not even going to begin thinking” about raising interest rates until inflation hits 2%

Some investors are also watching the Australian and New Zealand dollars, which have come under pressure on growing expectations their central banks could deliver more monetary stimulus. A decline in commodity prices is expected to increase downside risks for both currencies.

The Aussie fell 0.45% to $0.7042, near its weakest since July 21.

Other safe-haven currencies, including the Japanese yen and the Swiss franc, also held firm.

The British pound oscillated between gains and losses but held above $1.27 before an announcement of Britain’s plans to protect jobs and employment later in the day.

Gold fell on Tuesday as the dollar climbed to its highest in over a month, while investors remained doubtful over additional stimulus measures to aid the coronavirus-hit economy ahead of speeches from Federal Reserve officials this week.

Spot gold had fallen 0.45% to $1,904.00 per ounce, after dipping to $1,882.70 on Monday, its lowest level since Aug. 12. U.S. gold futures fell 0.1% to $1,909.10 per ounce.

The dollar , also considered as a safe-haven, notched a new six-week high against a basket of other major currencies as markets turned risk-averse over a surge of virus cases and new lockdown measures in Europe.

“Gold could be well below yesterday’s lows depending on how deep the equity sell-off goes. It’s just a function of how panicked investors are,” Bank of China International analyst Xiao Fu said, adding the increased risk-aversion could support the dollar and weigh on gold.
U.S. President Donald Trump’s bid to quickly fill the U.S.

Supreme Court vacancy left by the death of Justice Ruth Bader Ginsburg left investors fretting over the chances of more fiscal stimulus before the election Focus now shifts to Federal Reserve Chair Jerome Powell’s testimony before lawmakers, addressing questions about the raft of emergency measures the central bank has taken to cushion the blow to the economy from the pandemic.

“Governments are unlikely to roll out more stimulus measures even if COVID-19 cases soar as they have already used much of the ammunition earlier this year,” Bank of China International’s Fu said.

On the technical side, spot gold may retest support at $1,886 per ounce, a break below which could cause a fall to $1,855, said Reuters technical analyst Wang Tao.

Elsewhere, silver slipped 2.2% to $24.18 per ounce, platinum was up 0.9% at $889.01 and palladium fell 0.3% to $2,267.54.

Having ridden a short-covering rally sharply higher after the Federal Reserve left interest rates on hold, the U.S. dollar erased virtually all of those gains on Thursday as markets digested the U.S. central bank’s policy statement.

The greenback rebounded across the board in late Asian trade, posting its biggest daily rise in more than a week as dealers unwound short positions taken ahead of the Fed decision.

But with the new guidance from the Fed focused on keeping U.S. interest rates at current record lows until employment and inflation reach its targets, some strategists argue any dollar strength is likely to be temporary.

At its policy meeting, the Fed pledged to keep rates near zero until at least the end of 2023 when the labour market reaches “maximum employment” and inflation is on track to “moderately exceed” the 2% target.

With these conditions last met between March and October 2018, and before that in 2000, Commerzbank strategists said the Fed was imposing conditions for rate hikes that were met only very rarely in the past.

“The headlines focus mainly on the fact that the Fed does not expect any rate hikes until year-end 2023 based on its revised projections, but if one takes the forward guidance literally it might take much longer until rate hikes will be considered,” they said.

Against a basket of its rivals, the dollar index rose about 0.32% to trade at 93.493 before erasing most of its gains to trade nearly flat on the day at 93.22. It fell to more than two-year lows below 92 earlier this month.

The dollar’s weakness helped stem some of the selling pressure on other currencies such as the euro and the Australian dollar.

The single currency briefly hit a one-month low in Asian trading at $1.1737 before trimming some losses to stand 0.2% lower on the day at $1.1792.

Among Asian currencies, the Australian dollar was the hardest hit, falling 0.4% to $0.72770 despite strong jobs data.

The safe-haven Japanese yen changed hands at 104.76 against the greenback, a 2-1/2-month high.

The pound was broadly flat at $1.2958, after dropping more than 3.5% against the greenback and the euro last week. Sterling traders are now focusing on a meeting of the UK central bank, where it is likely to signal it is ready to pump more stimulus into Britain’s coronavirus-hit economy.